Here. And Greg Ransom applauds him which is a big flashing red light to me that something is wrong here. To me, ABCT is Wicksell plus Bohm-Bawerk, while Keynesianism is Wicksell plus Marshall. Taking the Bohm-Bawerk out of ABCT and just talking about capital theory the way most non-Austrian neoclassicals talk about capital theory seems like something different to me.
It ultimately doesn't matter what you call it. To me, this means that Jonathan is closer to the way I think about the economy (he just worries about price distortions at slightly different points in the business cycle). But it does make me wonder where Hayek has gone in all this.
I know that it is said that generalized problems occur across more and less roundabout points in the capital structure. That's precisely why I asked what we can and can't look for empirically. But let me quote an article of Jonathan's that he links to in this new blog post:
"What triggers the revelation of this incomplete investment, oftentimes described as "malinvestment," is a consequent rise in the price of consumer goods relative to capital goods. That capital deepening did not come at the expense of consumer demand but instead was made possible by an artificial increase in loanable funds, suggesting that the initial fall in the price of consumer goods that should have otherwise taken place did not actually occur. Consumer-goods prices will also rise as a factor of an increase in the price of labor, a product of an increase in the demand for labor as a factor of production, and as a result of a possible diminishing in the stock of capital goods, as some nonspecific goods are used in earlier stages of production. The rise in the price of consumer goods catalyzes the abrupt shortening of the structure of production, revealing a mass of malinvestment."
OK, so there obviously isn't a single "capital structure". Different industries have different periods of production. Andrew Young and others have shown that the length of the period of production does vary over the business cycle as Hayek suggested. Hayek's reason was related to the intertemporal coordinating role of the interest rate (which - I should add emphatically - we all agree on, we just all haven't made the contribution of applying it to the question of the length of the period of production the way Hayek did). When there is this "abrupt shortening" that Jonathan refers to, entrepreneurs are realizing that the price signals of the earlier monetary injections into the loanable funds market were actually giving a misleading signal about the value of time. Time is actually more costly than they thought. This ought to make a lot of particularly long produciton processes less profitable. Production processes that are shorter by their very nature shouldn't take as much of a hit because less of their costs are tied up in the cost of time - which was revealed to be distorted by the moentary authorities.
Now clearly this is going to have a broad impact. If workers in longer-period-of-production-industries are out of work they're going to buy less of everything, including goods from shorter-period-of-production industries. This criticism is fine and makes sense to me, I just wanted to clarify that that wasn't the only thing going on. But even in that case, I would think we would still see less of an impact on industries with naturally shorter production periods, whose profit margins are less contingent on the misinformation provided by the interest rate.
I guess I'm just wondering how this is really "Austrian". I'm thinking about ABCT more again and I'm thinking along the lines of contrasting "Wicksell + Bohm-Bawerk" with "Wicksell + Marshall", but Jonathan seems to be suggesting that is the wrong approach. I'm not sure I'm convinced.
Noted for May 18, 2013
39 minutes ago